Construction material producers say price adjustments needed

MANILA, Philippines - Hostile economic forces unfolding at the home front and elsewhere in the world have compelled Philippine construction materials manufacturers to seriously consider adjustments in their pricing mechanism to ward off potential losses arising from higher production and transport costs.

Industry experts said that plants producing construction materials worldwide are grappling with soaring prices of coal as Australia, the world’s largest producer of coal, went underwater in the country’s worst flooding in decades. Australia accounts for 26 percent of global coal export.

“Floods in Australia have somewhat caused a chaos in the world coal market,” said Farhan Bashir Khan, an analyst at InvestCap.

 “We are also faced with steeply increasing transport or delivery cost of cement and raw materials for production, not only because of the skyrocketing fuel prices, but also on the problem of strict implementation of the anti-overloading law,” said Renato Ermita, construction materials group chairman of the Federation of Philippine Industries (FPI).

“Unless we adjust our prices appropriately, we will be pushed to the edge of viability,” he added.

News reports reaching Manila have it that global coal prices continue to climb, reaching 34 percent higher since June last year, and cited two major reasons for the phenomenon. Temporary supply cuts from Australia and huge demand for coal by China which captures about 46 percent of the world’s coal consumption.

The scenario is further aggravated by constriction of fuel supply in the world market triggered by the political turmoil in oil producing countries Iran and Libya, sending gasoline prices to unprecedented high levels.

Although the Philippines also produces its own coal, industrial users are not enthusiastic with it due to “inferior heating value and high sulphur content,” forcing them to mainly rely on imported coal.

Historically, local manufacturers of construction materials have been operating at about 50 percent of maximum capacity “to maintain sanity in the supply and pricing chain.” Given the present day realities, their biggest headache now is how to reconcile runaway fuel cost and restrained retail prices.

Energy for the materials furnace which could either be coal or bunker fuel, plus electricity, accounts for a lion’s share (40 percent) of production cost.

The producers however, see a ray of hope in the coming months. “We expect demand to pick up from this month on due to normal weather conditions and heightened activity in infrastructure development.”

“Nonetheless, we believe that prices of construction materials will continue to remain under pressure even during peak season due to ramp up of new capacities (under utilization) in the scenario of improvement in demand,” they added.